kottke.org posts about Michael Lewis
This lovely video from a television station in Denmark highlights the similarities we all share across seemingly impassable social, economic, racial, and religious boundaries.
It’s easy to put people in boxes. There’s us and there’s them. The high-earners and those just getting by. Those we trust and those we try to avoid. There’s the new Danes and those who’ve always been here. The people from the countryside and those who’ve never seen a cow. The religious and the self-confident. There are those we share something with and those we don’t share anything with.
And then suddenly, there’s us. We who believe in life after death, we who’ve seen UFOs, and all of us who love to dance. We who’ve been bullied and we who’ve bullied others.
Last week I started reading The Undoing Project, Michael Lewis’s book about the friendship and collaboration of psychologists Daniel Kahneman and Amos Tversky. This passage on Tversky’s work seems relevant to this video.
From Amos’s theory about the way people made judgments of similarity spilled all sorts of interesting insights. If the mind, when it compares two things, essentially counts up the features it notices in each of them, it might also judge those things to be at once more similar and more dissimilar to each other than some other pair of things. They might have both a lot in common and a lot not in common. Love and hate, and funny and sad, and serious and silly: Suddenly they could be seen — as they feel — as having more fluid relationships to each other. They weren’t simply opposites on a fixed mental continuum; they could be thought of as similar in some of their features and different in others. Amos’s theory also offered a fresh view into what might be happening when people violated transitivity and thus made seemingly irrational choices.
When people picked coffee over tea, and tea over hot chocolate, and then turned around and picked hot chocolate over coffee — they weren’t comparing two drinks in some holistic manner. Hot drinks didn’t exist as points on some mental map at fixed distances from some ideal. They were collections of features. Those features might become more or less noticeable; their prominence in the mind depended on the context in which they were perceived. And the choice created its own context: Different features might assume greater prominence in the mind when the coffee was being compared to tea (caffeine) than when it was being compared to hot chocolate (sugar). And what was true of drinks might also be true of people, and ideas, and emotions.
The idea was interesting: When people make decisions, they are also making judgments about similarity, between some object in the real world and what they ideally want. They make these judgments by, in effect, counting up the features they notice. And as the noticeability of features can be manipulated by the way they are highlighted, the sense of how similar two things are might also be manipulated. For instance, if you wanted two people to think of themselves as more similar to each other than they otherwise might, you might put them in a context that stressed the features they shared. Two American college students in the United States might look at each other and see a total stranger; the same two college students on their junior year abroad in Togo might find that they are surprisingly similar: They’re both Americans!
By changing the context in which two things are compared, you submerge certain features and force others to the surface. “It is generally assumed that classifications are determined by similarities among the objects,” wrote Amos, before offering up an opposing view: that “the similarity of objects is modified by the manner in which they are classified. Thus, similarity has two faces: causal and derivative. It serves as a basis for the classification of objects, but is also influenced by the adopted classification.” A banana and an apple seem more similar than they otherwise would because we’ve agreed to call them both fruit. Things are grouped together for a reason, but, once they are grouped, their grouping causes them to seem more like each other than they otherwise would. That is, the mere act of classification reinforces stereotypes. If you want to weaken some stereotype, eliminate the classification.
That’s what this video did so effectively…it switched up the contexts. Rabid soccer fans became dancers, bullies became lonely people, people of different faiths were united by their believe in an afterlife. An exercise for investors and entrepreneurs building media companies and social networks (as well as people running small independent sites….I’m staring hard at myself in the mirror here): how can you build tools and platforms that give people more ways to connect to each other, to switch up the contexts in which people are able to group themselves?
Why does the US have only two main political parties? Is it because that’s what people want? Nope! It’s just an artifact of our system of voting. From C.G.P. Grey, a video explaining the problems with first-past-the-post voting systems (like the one used in US elections). Great simple explanation…well worth watching. Check out the rest of Grey’s videos in this series, particularly the one on gerrymandering.
Nothing in politics gets my blood boiling faster than gerrymandering…it is so grossly and obviously unfair. I bet you don’t even need to guess which of the two US political parties has pushed unfair redistricting in recent years.
More than anything for me, this is the story of politics in America right now: a shrinking and increasingly extremist underdog party has punched above its weight over the past few election cycles by methodically exploiting the weaknesses in our current political system. Gerrymandering, voter suppression, the passing of voter ID laws, and spreading propaganda via conservative and social media channels has led to disproportionate Republican representation in many areas of the country which they then use to gerrymander and pass more restrictive voter ID laws. They’ve limited potential conservative third party candidates (like Trump!) by incorporating them and their views into the main party. I would not be surprised if Republican donors strategically support left-of-center third-party candidates as spoilers — it’s a good tactic, underhanded but effective. They increasingly ignore political norms and practices to stymie Democratic efforts, like the general inaction of the Republican-led Congress over the past few years and the Senate’s refusal to consider Obama’s appointment of Merrick Garland to the Supreme Court.
None of this is an accident. They are a small but (and this is important) unified team that works for the benefit of the group above all else. In football terms, the Democrats are the stronger team: they gain more yards (look at Clinton’s ever-growing lead in the popular vote), they earn more first downs, and they might even score more points over the course of the season. But the Republicans won the Super Bowl by sticking together and deftly pressing their advantages to change the rules of the game in their favor. It’s a Moneyball strategy, but for politics.1 By almost any measure, the US is more liberal than it was 20 years ago and yet we have an incoming administration which is potentially authoritarian, influenced and advised by extremist white nationalists, and unapologetically corruptible. Somehow, we need to make the game more fair again. Fairness and justice should not be partisan. Americans — all Americans, liberal, centrist, and conservative — deserve a fair political process that reflects as closely as possible the collective needs and desires of the citizenry. Anything less should be unacceptable.
Update: Ross Lincoln makes some similar points about the election and liberal majority in America in a series of tweets about the importance of talking about Clinton’s popular vote totals.
14) Meanwhile, the great lie told by GOPs is that they’re ‘real’ America and that they’re a true majority, not liberals.
15) So when they win, regardless of circumstances, press & even many ostensible liberals fall in line w/demands liberals stop being liberal.
16) That’s happening now bigly. Even the LA Weekly published a horrid little illiterate screed about how liberals suck. LA Weekly!
17) but here’s the thing: Hill’s campaign seriously erred in ignoring key swing states. But she still is getting a historic pop vote margin
18) pushing 3 million more votes than Trump got. Possibly going to have gotten more votes than Obama got in 2012.
19) by any reasonable standard of judgment, clear majority of voters did not want Trump in office and most of those voters wanted Hillary.
20) Trump literally won only thanks to a technicality. And yet everyone is trying to push this idea that liberal votes don’t really count.
21) we’re told *we* live in a bubble. But as other ppl have noted, Los Angeles looks a hell of a lot more like America than Sapulpa, OK.
22) before anyone accuses me of being a snooty coastal elite, I am from Sapulpa, OK.
23) if Dems reacted to winning E.C. but not pop vote by saying OK isn’t a real place and doesn’t count, there’d be riots and impeachment.
24) That’s literally what is happening to liberals. But we didn’t just win the pop vote b/c of a quirk. We won it BIG. There are more of us.
25) if anything, we’re the ignored majority. Not conservatives, who literally cannot win fair and square.
See also Steven Johnson’s piece about how the wealthiest, most liberal, and most urban states pay the most taxes and have the least representation.
Michael Lewis (c’mon, you know, Moneyball, The Big Short) is coming out with a new book in December called The Undoing Project: A Friendship that Changed Our Minds about the flaws that crop up in human decision-making.
Forty years ago, Israeli psychologists Daniel Kahneman and Amos Tversky wrote a series of breathtakingly original studies undoing our assumptions about the decision-making process. Their papers showed the ways in which the human mind erred, systematically, when forced to make judgments about uncertain situations. Their work created the field of behavioral economics, revolutionized Big Data studies, advanced evidence-based medicine, led to a new approach to government regulation, and made much of Michael Lewis’s own work possible. Kahneman and Tversky are more responsible than anybody for the powerful trend to mistrust human intuition and defer to algorithms.
Kahneman won the Nobel Prize in economics in 2002 and is the author of the well-regarded Thinking, Fast and Slow. (via nytimes)
Socrates once wrote, “He is richest who is content with the least.” Even the great Greek philosopher would be feeling a little too rich today in Greece where citizens, greeted by news that the nation’s banks would be closed for the week, lined up at ATMs and employed the Socratic method with the repetition of the question: “Where the hell’s my money?” And if you’ve taken a look at your stock portfolio, there’s a decent chance you’ve asked your broker the same question. Here’s an overview of the Greek economic crisis from NYT Upshot, and the latest updates from BBC.
This global economy stuff is all Greek to me. If you’re feeling the same, you might appreciate Quartz’s guide to everything you need to know about this unfolding Greek tragedy, Mashable’s list of the five things you need to know about the meltdown, and Felix Salmon’s helpful explainer.
Michael Lewis explains the Greek financial crisis by comparing it to a Berkeley pedestrian.
He simply wants to stress to you, and perhaps even himself, that he occupies the high ground. In doing so, he happens to increase the likelihood that he will wind up in the back of an ambulance.
Michael Lewis has Eight Things I Wish for Wall Street.
2. No person under the age of 35 will be allowed to work on Wall Street.
Upon leaving school, young people, no matter how persuasively dimwitted, will be required to earn their living in the so-called real economy. Any job will do: fracker, street performer, chief of marketing for a medical marijuana dispensary. If and when Americans turn 35, and still wish to work in finance, they will carry with them memories of ordinary market forces, and perhaps be grateful to our society for having created an industry that is not subjected to them. At the very least, they will know that some huge number of people — their former fellow street performers, say — will be seriously pissed off at them if they do risky things on Wall Street to undermine the real economy. No one wants a bunch of pissed-off street performers coming after them.
Michael Lewis on a new book about billionaires, the increasing economic inequality in America, and the impact of the behavior of the very rich is having on politics and happiness. The camp breakfast anecdote at the beginning of the article is gold.
You all live in important places surrounded by important people. When I’m in the big city, I never understand the faces of the people, especially the people who want to be successful. They look so worried! So unsatisfied!
In the city you see people grasping, grasping, grasping. Taking, taking, taking. And it must be so hard! To be always grasping-grasping, and taking-taking. But no matter how much they have, they never have enough. They’re still worried. About what they don’t have. They’re always empty.
You have a choice. You don’t realize it, but you have a choice. You can be a giver or you can be a taker. You can get filled up or empty. You make that choice every day. You make that choice at breakfast when you rush to grab the cereal you want so others can’t have what they want.
The piece is filled with Lewis-esque observations throughout. Like:
Rich people, in my experience, don’t want to change the world. The world as it is suits them nicely.
The American upper middle class has spent a fortune teaching its children to play soccer: how many great soccer players come from the upper middle class?
But the studies about the effects of wealth and privilege on human behavior are what caught my eye the most.
In one study, Keltner and his colleague Paul Piff installed note-takers and cameras at city street intersections with four-way stop signs. The people driving expensive cars were four times more likely to cut in front of other drivers than drivers of cheap cars. The researchers then followed the drivers to the city’s cross walks and positioned themselves as pedestrians, waiting to cross the street. The drivers in the cheap cars all respected the pedestrians’ right of way. The drivers in the expensive cars ignored the pedestrians 46.2 percent of the time — a finding that was replicated in spirit by another team of researchers in Manhattan, who found drivers of expensive cars were far more likely to double park.
Living in Manhattan, I see stuff like this all the time and it’s becoming increasingly difficult to think of the rich and privileged as anything other than assholes, always grasping, grasping, grasping, taking, taking, taking.
After Michael Lewis wrote Moneyball in 2003 about the Oakland A’s, their general manager Billy Beane, and his then-unorthodox and supposedly superior managerial strategy, a curious thing happened: the A’s didn’t do that well. They went to the playoffs only twice between 2003 and 2011 and finished under .500 four times. Teams like the Red Sox, who adopted Beane’s strategies with the punch of a much larger payroll, did much better during those years.
But Beane hung in there and has figured out how to beat the big boys again, with two first place in 2012 & 2013 and the best record in the majors this year so far. Will Leitch explains how.
First, don’t spend a lot on a little; spend a little on a lot.
The emotional through-line of Moneyball is Beane learning from his experience as a failed prospect and applying it to today’s game. The idea: Scouts were wrong about him, and therefore they’ll be wrong about tons of guys. Only trust the numbers.
That was an oversimplification, but distrusting the ability of human beings to predict the future has been the centerpiece of the A’s current run. This time, though, the A’s aren’t just doubting the scouts; they’re also skeptical that statistical analysis can reliably predict the future (or that their analysis could reliably predict it better than their competitors). Instead, Beane and his front office have bought in bulk: They’ve brought in as many guys as possible and seen who performed. They weren’t looking for something that no one else saw: They amassed bodies, pitted them against one another, were open to anything, and just looked to see who emerged. Roger Ebert once wrote that the muse visits during the act of creation, rather than before. The A’s have made it a philosophy to just try out as many people as possible — cheap, interchangeable ones — and pluck out the best.
Michael Lewis’s new book about high-frequency trading dropped on Monday with less than 24 hours notice and the media is scrambling to catch up. There’s plenty of love for Lewis and his books out there, but Tyler Cowen has been linking to some critiques. For Bloomberg, Matt Levine writes:
In my alternative Michael Lewis story, the smart young whippersnappers build high-frequency trading firms that undercut big banks’ gut-instinct-driven market making with tighter spreads and cheaper trading costs. Big HFTs like Knight/Getco and Virtu trade vast volumes of stock while still taking in much less money than the traditional market makers: $688 million and $623 million in 2013 market-making revenue, respectively, for Knight and Virtu, versus $2.6 billion in equities revenue for Goldman Sachs and $4.8 billion for J.P. Morgan. Even RBC made 594 million Canadian dollars trading equities last year. The high-frequency traders make money more consistently than the old-school traders, but they also make less of it.
And here’s Matthew Philips on What Michael Lewis Gets Wrong About High-Frequency Trading:
1. HFT doesn’t prey on small mom-and-pop investors. In his first two TV appearances, Lewis stuck to a simple pitch: Speed traders have rigged the stock market, and the biggest losers are average, middle-class retail investors-exactly the kind of people who watch 60 Minutes and the Today show. It’s “the guy sitting at his ETrade account,” Lewis told Matt Lauer. The way Lewis sees it, speed traders prey on retail investors by “trading against people who don’t know the market.”
The idea that retail investors are losing out to sophisticated speed traders is an old claim in the debate over HFT, and it’s pretty much been discredited. Speed traders aren’t competing against the ETrade guy, they’re competing with each other to fill the ETrade guy’s order.
And Felix Salmon:
This vagueness about time is one of the weaknesses of the book: it’s hard to keep track of time, and a lot of it seems to be an exposé not of high-frequency trading as it exists today, but rather of high-frequency trading as it existed during its brief heyday circa 2008. Lewis takes pains to tell us what happened to the number of trades per day between 2006 and 2009, for instance, but doesn’t feel the need to mention what has happened since then. (It is falling, quite dramatically.) The scale of the HFT problem - and the amount of money being made by the HFT industry - is in sharp decline: there was big money to be made once upon a time, but nowadays it’s not really there anymore. Because that fact doesn’t fit Lewis’s narrative, however, I doubt I’m going to find it anywhere in his book.
Michael Lewis (The Big Short, Liar’s Poker) is back with another book about the financial markets: Flash Boys: A Wall Street Revolt. It’s the story of high-frequency trading and the traders who are fighting against it.
Flash Boys is about a small group of Wall Street guys who figure out that the U.S. stock market has been rigged for the benefit of insiders and that, post-financial crisis, the markets have become not more free but less, and more controlled by the big Wall Street banks. Working at different firms, they come to this realization separately; but after they discover one another, the flash boys band together and set out to reform the financial markets. This they do by creating an exchange in which high-frequency trading-source of the most intractable problems-will have no advantage whatsoever.
The characters in Flash Boys are fabulous, each completely different from what you think of when you think “Wall Street guy.” Several have walked away from jobs in the financial sector that paid them millions of dollars a year. From their new vantage point they investigate the big banks, the world’s stock exchanges, and high-frequency trading firms as they have never been investigated, and expose the many strange new ways that Wall Street generates profits.
From a Bloomberg article about the book:
His latest target, high-frequency trading, comprises a diverse set of software-driven strategies that have spread from U.S. equity markets to most developed countries as computer power grew and regulators tried to break the grip of centralized exchanges. While the tactics vary, they usually employ super-fast computers to post and cancel orders at rates measured in thousandths or even millionths of a second to capture price discrepancies on more than 50 public and private venues that make up the American equities market.
I don’t know too much about it but from what I’ve read, high-frequency trading seems to involve huge Wall Street banks using the Office Space/Richard-Pryor-in-Superman-III trick of shaving fractions of a penny off of trillions of trades every year, except that it’s perfectly legal. The NY Times has an excerpt of the book to further whet your appetite.
Michael Lewis made the case in The Blind Side that football players are the smartest in sports because the game is complex and moves fast. For the New Yorker, Nicholas Dawidoff takes a look at what makes a football player smart.
The Redskins’ London Fletcher is undersized and thirty-eight years old, but he’s been able to play for so long because he is a defensive Peyton Manning: seeing the game so lucidly, yelling out the offensive play about to unfold, changing alignments before the snap, organizing the field in real time. Similarly, Lavonte David, who has been with the Tampa Bay Buccaneers for two years, is just two hundred and thirty-four pounds — ten to fifteen pounds lighter than most at his position — the Wonderlic scores out on the Internet for him are not especially high, and, like all players, he makes the occasional boneheaded play. But he possesses dedicated study habits and a football clairvoyance that, come Sunday, finds him ignoring the blocking flow only at the one moment during a game when the offense runs the ball away from it.
The Hall of Fame Minnesota Vikings defensive lineman Alan Page weighed two hundred and forty-five pounds, the dimension of a modern fullback. Even so, Page was terrifying. His forty-yard-dash time wasn’t anything special, either, but he says that he could run down faster opponents because he always had sense where he was in relation to the blur of bodies around him-he could “understand the situation.” Page is now an Associate Justice on the Minnesota Supreme Court. “Being a football player requires you to take your emotional self to places that most people shouldn’t go,” he said. “You wouldn’t want to get to know the person who was in my head on a football field. I likely see some of these people in my current job — those who can’t control that person — and they do not very nice things.”
I asked him, “You could control that person on a field?”
“Most of the time,” Page said.
The safety, standing at the rear of the defense, must compensate for the mistakes of others; football intelligence matters more at this position than any other on the defense. At five-eight, a hundred and eighty-eight pounds, the Bills safety Jim Leonhard, a nine-year veteran, is among the smallest and also the slowest starting defensive backs in the game. And yet, watching him on film, he appears to teleport to the ball. Leonhard’s name seems to enter any conversation about football intelligence; he knows every teammate’s responsibilities in every call, and understands the game as twenty-two intersecting vectors. “He’d walk off the bus and you’d think he was the equipment manager,” Ryan Fitzpatrick said. “He’s still in the league because he’s the quarterback of the defense.”
Michael Lewis profiled Barack Obama for the October issue of Vanity Fair. The full version
isn’t available online yet (and I have a hunch they’ll keep it that way) is here, but the excerpts might just compell me into a purchase.
At play, the president wears red-white-and-blue Under Armor high-tops, but at work it’s strictly blue or gray suits. “I’m trying to pare down decisions. I don’t want to make decisions about what I’m eating or wearing. Because I have too many other decisions to make,” he tells Lewis. “You need to focus your decision-making energy. You need to routinize yourself. You can’t be going through the day distracted by trivia.” Lewis says that if he were president he might keep a list in his head. “I do,” Obama adds. “That’s my last piece of advice to you. Keep a list.”
That bit reminds me of this piece on Roger Federer.
I got another sense, however: a sense that he was conserving focus. Fed went through all his subsidiary responsibilities as the President of Tennis (as Steve Tignor calls him) without concentrating on anything, or at least on as few things as possible.
Concentration takes mental energy, as anyone who has fought off five break points before shanking a ball on the sixth knows. And whenever I saw Federer on the grounds, he seemed to be using as little of it as possible. Practicing with Nicolas Kiefer on Ashe a few days before the tournament, he mostly just messed around. He would hit a few familiar Federer shots, the heavy forehand, the penetrating slice, then shank a ball and grin, or yell. Either way, he wasn’t really concentrating all that hard.
And is it possible that Obama has read one of my favorite books about technology, Tom Standage’s The Victorian Internet?
Obama points to the 1849 patent model of Samuel Morse’s first telegraph: “This is the start of the Internet right here,” he tells Lewis.
Update: Aha! It looks like Vanity Fair just posted the whole thing online. (via @wistdom)
Michael Lewis continues his financial tour of the world with a stop in Germany. What, he asks, will the Germans do about the weakening financial situation in Europe and, more to Lewis’ point, why will they do it?
The deputy finance minister further disturbs my wild assumptions about him by speaking clearly, even recklessly, about subjects most finance ministers believe it is their job to obscure. He offers up, without much prompting, that he has just finished reading the latest unpublished report by I.M.F. investigators on the progress made by the Greek government in reforming itself.
“They have not sufficiently implemented the measures they have promised to implement,” he says simply. “And they have a massive problem still with revenue collection. Not with the tax law itself. It’s the collection which needs to be overhauled.”
Greeks are still refusing to pay their taxes, in other words. But it is only one of many Greek sins. “They are also having a problem with the structural reform. Their labor market is changing-but not as fast as it needs to,” he continues. “Due to the developments in the last 10 years, a similar job in Germany pays 55,000 euros. In Greece it is 70,000.” To get around pay restraints in the calendar year the Greek government simply paid employees a 13th and even 14th monthly salary-months that didn’t exist. “There needs to be a change of the relationship between people and the government,” he continues. “It is not a task that can be done in three months. You need time.” He couldn’t put it more bluntly: if the Greeks and the Germans are to coexist in a currency union, the Greeks need to change who they are.
Michael Lewis’ next book will be out in October; the subtitle is Travels in the New Third World. It’s a business book about the economic bubbles he’s been writing about in Ireland, Iceland, Greece, and the US.
The tsunami of cheap credit that rolled across the planet between 2002 and 2008 was more than a simple financial phenomenon: it was temptation, offering entire societies the chance to reveal aspects of their characters they could not normally afford to indulge.
Icelanders wanted to stop fishing and become investment bankers. The Greeks wanted to turn their country into a pi~nata stuffed with cash and allow as many citizens as possible to take a whack at it. The Germans wanted to be even more German; the Irish wanted to stop being Irish.
Michael Lewis’s investigation of bubbles beyond our shores is so brilliantly, sadly hilarious that it leads the American reader to a comfortable complacency: oh, those foolish foreigners. But when he turns a merciless eye on California and Washington, DC, we see that the narrative is a trap baited with humor, and we understand the reckoning that awaits the greatest and greediest of debtor nations.
No Kindle version available yet, just like last time. If you’d like to see one, click on the “I’d like to read this book on Kindle” below the cover image. (thx, brian)
Update: Just got word from Lewis’ publisher that the ebook version (including Kindle) will be available the same day as the hardcover.
That’s the title of an article written by Michael Lewis in 1989.
A big quake has hit Tokyo roughly every 70 years for four centuries: 1923, 1853, 1782, 1703, 1633.
Michael Lewis continues his tour of economic disasters — he wrote about Greece and Iceland for Vanity Fair and wrote an entire book on the US subprime mess — with a piece on Ireland and the country’s spectacular rise in becoming Europe’s mightiest economic engine and even steeper fall to third-world economic mess.
Even in an era when capitalists went out of their way to destroy capitalism, the Irish bankers set some kind of record for destruction. Theo Phanos, a London hedge-fund manager with interests in Ireland, says that “Anglo Irish was probably the world’s worst bank. Even worse than the Icelandic banks.”
Ireland’s financial disaster shared some things with Iceland’s. It was created by the sort of men who ignore their wives’ suggestions that maybe they should stop and ask for directions, for instance. But while Icelandic males used foreign money to conquer foreign places — trophy companies in Britain, chunks of Scandinavia — the Irish male used foreign money to conquer Ireland. Left alone in a dark room with a pile of money, the Irish decided what they really wanted to do with it was to buy Ireland. From one another. An Irish economist named Morgan Kelly, whose estimates of Irish bank losses have been the most prescient, made a back-of-the-envelope calculation that puts the losses of all Irish banks at roughly 106 billion euros. (Think $10 trillion.) At the rate money currently flows into the Irish treasury, Irish bank losses alone would absorb every penny of Irish taxes for at least the next three years.
In recognition of the spectacular losses, the entire Irish economy has almost dutifully collapsed. When you fly into Dublin you are traveling, for the first time in 15 years, against the traffic. The Irish are once again leaving Ireland, along with hordes of migrant workers. In late 2006, the unemployment rate stood at a bit more than 4 percent; now it’s 14 percent and climbing toward rates not experienced since the mid-1980s. Just a few years ago, Ireland was able to borrow money more cheaply than Germany; now, if it can borrow at all, it will be charged interest rates nearly 6 percent higher than Germany, another echo of a distant past. The Irish budget deficit — which three years ago was a surplus — is now 32 percent of its G.D.P., the highest by far in the history of the Eurozone. One credit-analysis firm has judged Ireland the third-most-likely country to default. Not quite as risky for the global investor as Venezuela, but riskier than Iraq. Distinctly Third World, in any case.
Of all the stories I’ve heard about the recent financial crisis — the high-risk mortgage loans, the CDOs, the credit default swaps, the Icelandic crisis — the story of the collapse of the Greek economy by Michael Lewis in the October issue of Vanity Fair is the craziest. And it’s the only one involving monks.
The tsunami of cheap credit that rolled across the planet between 2002 and 2007 has just now created a new opportunity for travel: financial-disaster tourism. The credit wasn’t just money, it was temptation. It offered entire societies the chance to reveal aspects of their characters they could not normally afford to indulge. Entire countries were told, “The lights are out, you can do whatever you want to do and no one will ever know.” What they wanted to do with money in the dark varied. Americans wanted to own homes far larger than they could afford, and to allow the strong to exploit the weak. Icelanders wanted to stop fishing and become investment bankers, and to allow their alpha males to reveal a theretofore suppressed megalomania. The Germans wanted to be even more German; the Irish wanted to stop being Irish. All these different societies were touched by the same event, but each responded to it in its own peculiar way.
As it turned out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was turn their government into a pinata stuffed with fantastic sums and give as many citizens as possible a whack at it. In just the past decade the wage bill of the Greek public sector has doubled, in real terms-and that number doesn’t take into account the bribes collected by public officials. The average government job pays almost three times the average private-sector job. The national railroad has annual revenues of 100 million euros against an annual wage bill of 400 million, plus 300 million euros in other expenses. The average state railroad employee earns 65,000 euros a year. Twenty years ago a successful businessman turned minister of finance named Stefanos Manos pointed out that it would be cheaper to put all Greece’s rail passengers into taxicabs: it’s still true. “We have a railroad company which is bankrupt beyond comprehension,” Manos put it to me. “And yet there isn’t a single private company in Greece with that kind of average pay.” The Greek public-school system is the site of breathtaking inefficiency: one of the lowest-ranked systems in Europe, it nonetheless employs four times as many teachers per pupil as the highest-ranked, Finland’s. Greeks who send their children to public schools simply assume that they will need to hire private tutors to make sure they actually learn something. There are three government-owned defense companies: together they have billions of euros in debts, and mounting losses. The retirement age for Greek jobs classified as “arduous” is as early as 55 for men and 50 for women. As this is also the moment when the state begins to shovel out generous pensions, more than 600 Greek professions somehow managed to get themselves classified as arduous: hairdressers, radio announcers, waiters, musicians, and on and on and on. The Greek public health-care system spends far more on supplies than the European average-and it is not uncommon, several Greeks tell me, to see nurses and doctors leaving the job with their arms filled with paper towels and diapers and whatever else they can plunder from the supply closets.
Read the whole thing…it’s insane.
The Big Short by Michael Lewis is finally out for the Kindle (well, it came out two weeks ago, about a month after the hardcover). You might remember the hubbub about the lack of a Kindle version.
Anyway, the book is excellent; I read it pretty much nonstop until finished. Lewis cleverly recasts the story of one of the biggest financial disasters in American history as a heroic tale. Heroic!
Vanity Fair has a lengthy excerpt from Michael Lewis’ new book The Big Short (out today).
As often as not, he turned up what he called “ick” investments. In October 2001 he explained the concept in his letter to investors: “Ick investing means taking a special analytical interest in stocks that inspire a first reaction of ‘ick.’” A court had accepted a plea from a software company called the Avanti Corporation. Avanti had been accused of stealing from a competitor the software code that was the whole foundation of Avanti’s business. The company had $100 million in cash in the bank, was still generating $100 million a year in free cash flow-and had a market value of only $250 million! Michael Burry started digging; by the time he was done, he knew more about the Avanti Corporation than any man on earth. He was able to see that even if the executives went to jail (as five of them did) and the fines were paid (as they were), Avanti would be worth a lot more than the market then assumed. To make money on Avanti’s stock, however, he’d probably have to stomach short-term losses, as investors puked up shares in horrified response to negative publicity.
“That was a classic Mike Burry trade,” says one of his investors. “It goes up by 10 times, but first it goes down by half.” This isn’t the sort of ride most investors enjoy, but it was, Burry thought, the essence of value investing. His job was to disagree loudly with popular sentiment. He couldn’t do this if he was at the mercy of very short-term market moves, and so he didn’t give his investors the ability to remove their money on short notice, as most hedge funds did. If you gave Scion your money to invest, you were stuck for at least a year.
Really fascinating. In a recent review, Felix Salmon called The Big Short “probably the single best piece of financial journalism ever written”.
Unsurprisingly, the MLB teams currently drawing the most benefit from the lessons of Moneyball are those with lots of money operating in big markets.
Well, of course, the big-market teams figured it out. They hired their own Ivy League consultants. They bought even better computers. Walks is only one tiny aspect in it … but who leads the American League in walks this year? The New York Yankees. Last year? The Boston Red Sox. The year before that? The Boston Red Sox. And so it goes. Now, six years later, it seems to me that the small-market teams are really grasping and trying to find some loophole, some opening that will allow them to win in this tough financial environment.
The combination of Pitt and Soderbergh and Lewis wasn’t enough to keep the Moneyball movie afloat…Sony canceled it “days before shooting was to begin”.
Accounts from more than a dozen people involved with the film, who spoke on the condition of anonymity to avoid damaging professional relationships, described a process in which the heady rush toward production was halted by a studio suddenly confronted by plans for something artier and more complex than bargained for.
Sony was probably looking for something more BIG RED TEXTish.
Michael Lewis’ book about the ongoing financial collapse has a name: The Big Short: Inside the Doomsday Machine.
A brilliant account — character-rich and darkly humorous — of how the U.S. economy was driven over the cliff. Truth really is stranger than fiction. Who better than the author of the signature bestseller Liar’s Poker to explain how the event we were told was impossible — the free fall of the American economy — finally occurred; how the things that we wanted, like ridiculously easy money and greatly expanded home ownership, were vehicles for that crash; and how shareholder demand for profit forced investment executives to eat the forbidden fruit of toxic derivatives.
It’s not out until November 2 but you can pre-order it from Amazon. (thx, brian)
Update: The book is out on March 15 and there’s an excerpt in the April issue of Vanity Fair.
Michael Oher, the subject of Michael Lewis’ The Blind Side, got drafted in the first round of the NFL Draft by the Baltimore Ravens. Oher was chosen 23rd.
Update: Lewis comments on the draft here and here. (via unlikely words)
Wait, Steven Soderbergh is directing the film adaptation of Michael Lewis’ Moneyball? When did this wonderfulness happen?!! Last I heard, the director was the guy who did Marley & Me. Perhaps Pitt put the kibosh on that and lobbied for Soderbergh? (via fimoculous)
Jonas Moody, who has lived on Iceland for the past seven years, takes Michael Lewis to task for some inaccuracies and other odd things in his Vanity Fair piece about the country’s economic crisis.
5. “Icelanders are among the most inbred human beings on earth — geneticists often use them for research.”
Now this is insulting. Icelanders’ DNA shows their roots to be a healthy mix between Nordic Y chromosomes and X chromosomes from the British Isles. The reason genetic-research company deCODE uses Icelandic genes for its research is not because the codes are so homogeneous, but because the population has kept excellent genealogical records dating back thousands of years.
I sort of shrugged my shoulders at this stuff when I read the piece and forged ahead for the financial meat and potatoes, but it doesn’t read so well when collected all in one place like this. Was the piece supposed to be a farce? If not, it doesn’t reflect well on Lewis or his editors at VF. (thx, micah)
Speaking, as we briefly were, of Big Think, they have several short video interviews of Michael Lewis about the current financial crisis and other things. Worth a look see.
Michael Lewis, who is seemingly cranking out 10,000 words a day about finance and sports these days, writes in the pages of Vanity Fair about the Icelandic financial collapse. It’s an amazing story.
That was the biggest American financial lesson the Icelanders took to heart: the importance of buying as many assets as possible with borrowed money, as asset prices only rose. By 2007, Icelanders owned roughly 50 times more foreign assets than they had in 2002. They bought private jets and third homes in London and Copenhagen. They paid vast sums of money for services no one in Iceland had theretofore ever imagined wanting. “A guy had a birthday party, and he flew in Elton John for a million dollars to sing two songs,” the head of the Left-Green Movement, Steingrimur Sigfusson, tells me with fresh incredulity. “And apparently not very well.” They bought stakes in businesses they knew nothing about and told the people running them what to do — just like real American investment bankers!
But it was all essentially make-believe.
A handful of guys in Iceland, who had no experience of finance, were taking out tens of billions of dollars in short-term loans from abroad. They were then re-lending this money to themselves and their friends to buy assets — the banks, soccer teams, etc. Since the entire world’s assets were rising — thanks in part to people like these Icelandic lunatics paying crazy prices for them — they appeared to be making money. Yet another hedge-fund manager explained Icelandic banking to me this way: You have a dog, and I have a cat. We agree that they are each worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners, but Icelandic banks, with a billion dollars in new assets. “They created fake capital by trading assets amongst themselves at inflated values,” says a London hedge-fund manager. “This was how the banks and investment companies grew and grew. But they were lightweights in the international markets.”
Michael Lewis talks a little about his writing process.
I’ve written in awful enough situations that I know that the quality of the prose doesn’t depend on the circumstance in which it is composed. I don’t believe the muse visits you. I believe that you visit the muse. If you wait for that “perfect moment” you’re not going to be very productive.
Michael Lewis cast his Moneyball lens on basketball in this week’s NY Times Magazine. The Billy Beane of the roundball story, more or less, is Shane Battier, a guard for the Houston Rockets. Battier doesn’t seem like a great basketball player, but he does a lot of little things that helps his team win.
Battier’s game is a weird combination of obvious weaknesses and nearly invisible strengths. When he is on the court, his teammates get better, often a lot better, and his opponents get worse — often a lot worse. He may not grab huge numbers of rebounds, but he has an uncanny ability to improve his teammates’ rebounding. He doesn’t shoot much, but when he does, he takes only the most efficient shots. He also has a knack for getting the ball to teammates who are in a position to do the same, and he commits few turnovers. On defense, although he routinely guards the N.B.A.’s most prolific scorers, he significantly Âreduces their shooting percentages.
Battier sounds like an intriguing fellow but the most interesting part of the article is about how the players’ incentives differ in basketball from other major American sports.
There is a tension, peculiar to basketball, between the interests of the team and the interests of the individual. The game continually tempts the people who play it to do things that are not in the interest of the group. On the baseball field, it would be hard for a player to sacrifice his team’s interest for his own. Baseball is an individual sport masquerading as a team one: by doing what’s best for himself, the player nearly always also does what is best for his team. “There is no way to selfishly get across home plate,” as Morey puts it. “If instead of there being a lineup, I could muscle my way to the plate and hit every single time and damage the efficiency of the team — that would be the analogy. Manny Ramirez can’t take at-bats away from David Ortiz. We had a point guard in Boston who refused to pass the ball to a certain guy.”
No wonder it’s so hard to build a basketball team with the right balance of skills and personalities. Take five guys, put them on a court, let them do whatever they think they need to do to get a larger contract next year, and maybe you get some pretty good results. Now, consider a situation where the plus/minus statistic is the basis for player salaries and all of sudden, players need to figure out how they can make the other four guys on the floor better. And while everyone is making adjustments to each others’ games, each player is adjusting to everyone else’s game, and the process becomes this fragile and intricate nonlinear dance that results in either beautiful chaos or the 1972-73 Philadelphia 76ers.
PS. The brief author bio at the end of the article continues the recent game of “next book” Whack-A-Mole from Lewis. Since the publication of The Blind Side in 2006, Lewis’ next book has been listed in various outlets as being about New Orleans/Katrina, financial panics (which turned out to be an anthology edited by Lewis), his sequel to Liar’s Poker about the current financial crisis, and now is listed as “Home Game, a memoir about fatherhood”. I give up.
The Atlantic’s new business blog has an interview with Michael Lewis.
A related thing is that there was blind faith in the value of financial innovation. Wall Street dreamed up increasingly complicated things, and they were allowed to do it because it was always assumed that if the market wanted it then it made some positive contribution to society. It’s now quite clear that some of these things they dreamed up were instruments of doom and should never have been allowed in the marketplace.
In an Op-Ed piece for the NY Times called The End of the Financial World as We Know It, Michael Lewis and David Einhorn explore what checks and balances should have been in place to prevent the US financial markets from running themselves into the ground in search of perpetual short-term gain.
Our financial catastrophe, like Bernard Madoff’s pyramid scheme, required all sorts of important, plugged-in people to sacrifice our collective long-term interests for short-term gain. The pressure to do this in today’s financial markets is immense. Obviously the greater the market pressure to excel in the short term, the greater the need for pressure from outside the market to consider the longer term. But that’s the problem: there is no longer any serious pressure from outside the market. The tyranny of the short term has extended itself with frightening ease into the entities that were meant to, one way or another, discipline Wall Street, and force it to consider its enlightened self-interest.
Here’s part 2, in which Lewis and Einhorn propose some possible remedies.